Institutional EYE

Commentary on Corporate Governance Issues

Justice Srikrishna report brings a closure to ICICI Banks travails

Earlier today ICICI Bank issued a statement on findings in the enquiry report of Justice (Retd.) B.N. Srikrishna (Srikrishna Report). The conclusions of the report were definitive – Ms. Chanda Kocchar had violated ICICI Bank’s conflict of interest policy and failed in her fiduciary responsibility. As a consequence, the report asked for a clawback of her bonuses and stock options from April 2009. Following the receipt of the report the Board of Directors decided to treat the separation of Ms Chanda Kochhar from the Bank as ‘Termination for Cause’ under the Bank’s internal policies, schemes and the Code of Conduct, with all attendant consequences. While the severity of the punishment’, the opt

Can RBI and Kotak both be right?

The current battle between Kotak Mahindra Bank and the Reserve Bank of India with respect to Uday Kotak’s ownership levels have raised many questions. Both sides have an opposing yet a seemingly legitimate point of view. While the issue awaits a court directive, we ask if this battle serves any purpose. Independent of which side (RBI or Kotak) ‘wins’, there is no gain for Kotak Mahindra Bank’s stakeholders. The debate between the Reserve Bank of India (RBI) and Kotak Mahindra Bank (KMB) now rests on the intent of the regulation vs. the letter of law. KMB alleges that it has met RBI’s requirement of dilution by issuing perpetual non-cumulative preference shares (PNCPS), thus reducing promoter

Sun Pharma is weighted down by its own corporate governance issues

Sun Pharma has streamlined its operations over the past few years and appears to have addressed the immediate issues that plague investors too. But it remains silent on how it proposes to correct some of its corporate governance practices. The environment today is far more focused on long-term value, and that needs to be the concentration of its management, promoters, and the board. Sun Pharmaceutical Industries Limited’s (Sun Pharma)’s board has failed to control the narrative. Its filing with the stock exchanges today is reactionary – it came after more paperwork was released by the same whistle blower, who is an insider and whose assertions have been backed up with documentation. While th

SEBI’s denial of L&T’s buyback rekindles an old debate

SEBI’s rejection of Larsen & Toubro Limited’s (L&T) buyback raises questions on whether financial metrics should be considered at a consolidated level or at a standalone level. This refusal brings to the forefront the concern that much gets hidden in subsidiaries. SEBI’s rejection of L&T’s buyback on account of the fact that consolidated debt-equity is a breach of its regulatory threshold of 2:1 post-buyback is possibly the first time that the regulator has raised the question of consolidated financial metrics vs. standalone financial metrics. Perhaps a lesson from the recent meltdown in the IL&FS group is playing on SEBI’s mind. Even so, we argue that while L&T is not incorrect its stance,

Let sleeping dogs sleep

Every once in a way an idea takes hold which is supposed to be the panacea for a specific problem plaguing the local equity markets. Share buy-backs were seen to be the perfect tonic for reviving anaemic secondary markets in the late 90’s: but markets began their secular uptick not when buy-backs were permitted in 1998, but a few years later when earnings picked-up steam. Dual class shares are seen to be an answer to moribund IPO markets today. That investors should have more flexibility in raising money and investors in deploying funds is a given. But to argue that dual class shares alone can bring the zip back to the IPO markets is dubious as their deleterious impact may far outweigh their

Sun Pharma: What investors should ask of its board

The whistle-blower allegations have raised governance concerns at Sun Pharma. Given its current structure, and the new SEBI-accepted Kotak Committee recommendations, the company will be required to make changes to its processes and its board. Investors are better placed in proactively raising their concerns with the board, to ensure that the new governance structures at Sun Pharma are robust, not just in their compliance but also in their intent. Sun Pharmaceutical Industries Limited’s (Sun Pharma) board’s silence on the accusations of the whistle-blower letter has allowed the promoters to give themselves a clean chit. The argument of no wrong-doing does not carry enough credibility if it co

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